What happened — the financial world is losing its mind as a Chinese real estate developer, Evergrande Group, is going bust, unable to pay nearly $300 billion in money owed, making it the 2008-financial crisis in the making.
Evergrande owns about 1,300 real estate projects around China, managing thousands of more properties, all spread across 300+ cities. High on business success, the company dabbled from electric vehicles to media to healthcare and even theme parks.
So a quick timeline of events leading up to the bust:
- Last 10 years, Evergrande swells into the 2nd largest Chinese real estate company (developer + property manager) on the back of the property boom in China
- Evergrande rapidly levers up — taking massive loans to fuel its growth
- In ~2017, banks and regulators begin to worry a bit…
- China's property market cools off in the last 2 years, while Evergrande is sitting on a massive unfinished inventory of high rises
- Evergrande starts offering 20-30% discounts to clear homes, pay bills
- Meanwhile, banks stop funding projects. And financiers stop giving loans to consumers for Evergrande’s apartments
- Evergrande starts to sell off its subsidiaries, but the $$ is not enough to plug cash flow leaks to pay suppliers, banks etc.
- Markets dump stock, Evergrande bonds go to zero
- August 2021, Rekkt
What now — citizen protests have begun. Evergrande employs about 200K people, but indirectly could cause 2M+ job losses. Meanwhile, the government is still mum on if it wants to help, or let the company fail and be made an example of.
Big picture — Evergrande’s situation is pretty much like the wipeout of the Lehman Brothers empire, which had catalyzed the ‘08 financial crisis. Tremors could quickly reverberate much farther from China.